Joel Beck

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About The Beck Law Firm, LLC

Joel Beck, a former NASD Department of Enforcement lawyer, formed The Beck Law Firm, LLC in 2007. Joel's practices focuses on three main areas: 1) broker-dealer and registered investment adviser regulation/compliance, regulatory investigations and enforcement actions, and arbitration cases, 2) business formations and small business legal needs, and 3) basic estate planning.

The Disclaimer

The Beck Law Firm, LLC and Joel Beck, the author of this blog, provide this material for informational purposes only. While we believe the content to be accurate, we make no guarantee to that effect. Use of this blog does not create an attorney/client relationship and The Beck Law Firm, LLC does not represent you unless and until we have entered into a written representation agreement. The hiring of an attorney is an important decision and should not be based upon advertisements, including websites and blogs. Please contact us for additional information about our qualifications before making a decision.

Copyright 2007-2014

The original works appearing on this page are the intellectual property of Joel Beck and The Beck Law Firm, LLC. Copyright 2007-2014.

Comments Policy

I welcome comments on most postings, and like to keep the discussion going. Comments are moderated and will not post until publisher review. Comments that don't relate to the topics and subject matter of the blog, and seek only to provide links for other websites, will not not be published. The Beck Law Firm, LLC and Joel Beck are not responsible for contents of the published comments, and do not necessarily share the same views as the commenter.

Posts categorized "Broker-Dealer/RIA Self-Regulation"

May 13, 2014

Rule 8210. It sounds pretty official and scary. And it can be. It is a very important rule in the context of FINRA examinations, and your failure to abide by it can have pretty significant consequences. But what is this rule, and what does it require?

In today's video blog, attorney Joel Beck seeks to pull back the veil a bit, and help you better understand Rule 8210.

January 07, 2014

Continuing a popular release now for the 9th year ina row, FINRA issued its annual exam priorities letter, highlighting areas of concerns on which they will be focused in 2014. This is a must read for all compliance and legal folks within the broker-dealer industry, as well as those with supervisory responsibilities. I also think it is a good read for everyone else in the industry, including brokers, so that they can understand some of the big ticket items on the regulator's radar screen this year. Knowledge is a good thing.

The items highlighted in this year's priority list are not surprising. On the sales practice issue, FINRA is letting us know that suitability of complex products is still a very large concern. And, to that end, they are also concerned about the knowledge that broker's have about complex products. Do they understand it? Can they explain it adequately? If not, why are they talking to clients about it? Other sales practice concerns include a heightened focus on what FINRA identifies as "recidivist brokers," who are brokers who have a pattern of complaints or other disclosures relating to sales practice abuses. In addition to focusing exam efforts on these individuals, FINRA is also looking at the firms that hire these brokers, and explain that the will review due diligence in the hiring process and the supervision of the individual. Other exam focus areas include conflicts of interest, data security, private placements, and more. On the market regulation side, some key focus areas include audit trail integrity and best execution of trades.

This is not a complete list of the exam priorities, so you should read the entire letter for yourself at the link above. And then assess your compliance and supervision systems and determine whether any changes ought to be made. Forewarned is forearmed.

February 21, 2013

Feb 21, 2013: FINRA announced today that a Hearing Panel issued a Decision in the case of FINRA's Department of Enforcement v. Charles Schwab & Co., Inc. In doing so, the Hearing Panel dismissed two of three causes of the action against Schwab, and found for Enforcement on the remaining cause. The Panel imposed a fine of $500,000 and ordered that Schwab take specific corrective action. The Panel Decision was issued today (2/21/13) and is not final. It may be appealed by either party, or it may be called for review by FINRA's National Adjudicatory Council. I don't know how the case will finally end, but the ending will be very significant to the industry and investors.

The Hearing Panel Decision is about 49 pages long, and takes some time to go through. Here's my attempt at a down and dirty summary based on a quick review (links to the press release and the decision itself are above, so you can access the documents yourself if you are interested):

October 16, 2012

FINRA has adopted Rule 5123 concerning private placements, and has announced an effective date of December 3, 2012.

Under this new rule, each FINRA member broker-dealer that is selling in a private placement will file a copy of the PPM, term sheet or other offering document within 15 days of the date of the sale, or advse FINRA that no such materials were used.

There are several exemptions under 5123(b), and business leaders and compliance folks should become familiar with the reporting requirements and the applicable exemptions. Further, in advance of the effective date, firms need to consider whether their written supervisory procedures need to be amended to help achieve compliance with the rule.

FINRA's Regulatory Notice 12-40 announcing the SEC approval and effective date of the rule can be found here.

August 07, 2012

I've opined many times here on the blog that sometimes it pays to litigate, rather than settle. What I mean by that is that in some cases before FINRA or the SEC, while a settlement might be quick, the end result is that the settlement imposes harsher sanctions than could reasonably be obtained after a formal hearing. In other words, some cases have a "litigation discount" it seems, as opposed to a discount for settling that you might expect.

* FINRA respondents with a lawyer are significantly more successful than pro se respondents. The study details that respondents with counsel succeeded in getting 18.8% of charges dismissed, while respondents without counsel had 0% success during the review period.

* With respect to monetary sanctions, SEC and FINRA respondents were able to obtain lower sanctions against them, when compared to what the staff had sought, in nearly a third of the cases.

* With respect to suspensions from the industry, FINRA respondents were effective in reducing sanctions at hearing in approximately 50% of cases studied. Importantly, the study notes, when FINRA staff sought a complete bar as a sanction, 75% of respondents convinced a Hearing Panel to impose a lesser sanction.

So what does all of this mean? To me, it boils down to two things that folks facing a regulatory action need to understand. First, having a lawyer experienced in securities regulatory cases is critical. Second, sometimes you have to be willing to stand up and fight.

Obviously, with respect to the decision of settling or litigating, other factors come into play including resources, publicity, etc. The decision of whether to settle or litigate is a very important decision that must be made based on the particular facts of the case. Many times, settling a case is the right thing to do. But not always. And sometimes it pays to fight.

June 04, 2012

I spent a few minutes reviewing the FINRA disciplinary actions reported for May 2012. These are published each month online; you can find May's notice here. As to cases against firms, there are the run of the mill trade reporting type violations that we see each month. In addition, however, were several cases dealing with AML compliance and email retention. There were also a few cases relating to sales of unregistered securities and private placement issues, including a case involving general solicitation in a private offering. Two cases caught my eye, as firms were fined significantly ($100,000 and $350,000 plus restitution) in cases alleging a failure to supervise reasonably. In each of these cases, it seems that the firm was alleged to have failed to respond appropriately to red flags, that the regulator seems to argue would have uncovered and stopped theft of client funds by a broker or stop other fraudulent activity by the broker. If you're read BDLawBlog before, you know that supervision is always scrutinized, and wise principals know to focus on red flags, to respond to them, and to document their activity to help manage the risks of supervising.

In cases against individual brokers, we see the typical failure to respond, U4 violations, conversion of funds types cases that we see each month. One broker case caught my eye: a broker was fined $10,000 and suspended for a year, and required to take ethics training acceptable to FINRA, based on allegations that he improperly requested, or in some cases permitted, another individual at his broker-dealer to complete nineteen online courses and tests on his behalf. It seems that these online courses were certification tests as well as continuing education courses and the like. Over the past year or so, we're seen a rise in cases similar to this, and folks should know that, even if it is not a FINRA exam or continuing education session, the regulators take these things seriously

As the new notice indicates, much of the obligations imposed on firms and representatives is not new, however, the new rule incorporates obligations that have been enforced via disciplinary cases and interpretive releases. Specifically, the new rule requires that firms and brokers have a reasonable basis to believe that a security is suitable for some investor (reasonable basis suitability), then have a reasonable basis to believe it is suitable for that particular customer (customer specific suitability), and finally, the concept of quantitative suitability (the suitability of a series of recommended transactions) is written into the new rule. In addition, to a discussion of these three items, the notice provides further guidance to firms and brokers regarding the new rule.

I recommend that all brokers and supervisors, including compliance folks, review this new notice. It is safe to expect that once the new rule is implemented, regulators will review compliance with it, as well as the reasonableness of supervisory procedures and controls regarding complying with the rule, during routine and special exams at broker-dealers.

April 26, 2012

Spencer Bachus (AL), the Chairman of the House Financial Services Committee, introduced legislation into the House on Wednesday, Apri 25, 2012, together with Rep. Carolyn McCarthy (NY) to change the regulatory structure for the retail investment advisory industry. Under the bill, the short title of which is The Investment Adviser Oversight Act of 2012, registered investment advisors would be required to register with a newly created self-regulatory organization(s) called National Investment Adviser Associations (NIAAs) that would be registered and overseen by the SEC. This proposal would result in an SRO regulatory system for RIAs very similar to the SRO oversight in the broker-dealer community, where FINRA serves as the predominant SRO for broker-dealers. As many know, FINRA has been positioning itself to become the selected regulatory for the RIA industry. At this point, the legislation has just been introduced. It will be assigned to a committee for review first, and then may possibly work its way to the full House for consideration. The proposed bill is here, and the Committee on Financial Services announcement can be found here.

January 16, 2012

FINRA has published their notice of disciplinary actions for December 2011. In cases involving firms, there were a few cases relating to alleged failures to complete an annual certification of compliance and supervisory processes to senior management at firms, as well as failing to test and verify supervisory controls and procedures. Firms should be aware of the requirements for these certifications. It is apparent that the examiners are reviewing for compliance in this area during examinations of broker-dealers.

One case that caught my eye involved a national broker-dealer that submitted an AWC agreeing to be fined $350,000 and censured. This was based on findings that the firm failed to establish, maintain and enforce adequate WSPs for its escheatment group in regards to addressing abandoned accounts (accounts where the account statements were returned as undeliverable, for example). FINRA found that the deficient procedures allowed an operations manager to convert approximately $850,000 from retail client accounts, and let the manager avoid detection by the firm (Case 2009020630701).

As always, there were a number of actions against individuals. We see the typical selling away cases, as well as several cases involving improper borrowing of funds from customers, and some conversation cases. There were also several cases against supervisors relating to supervision of private offerings, as well as supervision of excessive or unsuitable trades. Supervisors are increasingly on the regulator's radar and must be aware of, and respond to, red flags in these areas.

A few cases against individuals also caught my eye. First, there were a couple of cases against brokers who were found to have let a manager in their firm complete their required firm element continuing education program. These brokers were fined $5,000 and suspended for 30 days. (2009019276103 and 2009019276102), In another case, an individual was fined $7,500 and suspended for 20 business days based on findings that the individual sold $1.3 million in private placement offerings without required registration, as the individual had not passed the Series 7 exam (or, according to FINRA, any other FINRA qualifications exam) until a later date. (2010022715604).

January 13, 2012

FINRA has sought to have the SEC approve proposed FINRA Rule 2210 relating to communications with the public (similar to NASD Rule 2210 dealing with the same subject). In a letter to the SEC dated December 22, 2011, FINRA responded to comment letters on the proposed rule, as well as other proposed rules. As it relates to social media use and other online electronic communications (not email), FINRA has explained that it believes that participation in online forums occur in real-time, and that it is not practical to require pre-use approval of such postings by a principal. Nevertheless, these communications must still be supervised by firms. Addressing concerns as to whether they are correspondence or public appearances, FINRA has explained that participation in an interactive electronic forum would fall under the "retail communication" category of communication and would be supervised by broker-dealers in the same manner as required for supervising correspondence. Recognizing the difficulties of supervision in these areas if pre-use filing was required, FINRA has amended proposed FINRA Rule 2210(c)(7) to add an exclusion from filing for such communications posted online in interactive forums. FINRA makes clear, however, that the exemption from filing would not apply if any other filing requirement arises under federal law or pursuant to SEC rules. (See pages 10-12 in the letter at the link above).

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We help brokers and advisers across the country with their federal securities regulatory matters. To discuss your situation, contact Joel Beck at The Beck Law Firm. (678) 344-5342 or send an email to info @ thebeckfirm.com (Don't send any confidential information until we request it, and understand that the firm does not represent you until a written engagement agreement is signed).